KingMakers IAS Academy logo

Banning Chinese apps – Will it hurt China?

Banning Chinese apps – Will it hurt China?

UPSC CSE Mains Syllabus: GS-2- India and its neighborhood- relations.

GS – 3- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

India is considering a range of economic measures aimed at Chinese firms amid the border tensions.

India’s economic measures:

  • The move to ban 59 Chinese appsmay be just the start, with other measures likely to follow if tensions along the Line of Actual Control (LAC) continue, without disengagement.
  • Recently, Power Minister said India would not import power equipmentfrom China — worth $2 to $3 billion annually.
  • The Minister for Road Transport and Highwayssaid that Chinese companies would not be allowed to take part in road projects.
  • Reports have said the government is considering trade and procurement curbs targeting China.
  • The government is also increasing scrutiny of Chinese investmentsin many sectors, and weighing a decision to keep out Chinese companies from 5G trials.

Why such measures:

  • The moves could potentially cost Chinese companies billions of dollars.
  • The message from Delhi is, it cannot continue tradeand investment relations as normal, if China does not agree to return to the status quo of April before its incursions along the LAC began.

Chinese policies so far:

  • China has frequently deployed economic countermeasures, from restricting market access to boycotting goods, in the midst of its own disputes, with countries ranging from South Koreaand Japan to the Philippines.
  • China’s state media spearheaded a boycott of South Korean goodsin 2016 and 2017, when Seoul deployed the S. Terminal High-Altitude Area Defense missile system.
  • China then placed curbs on outbound tourism to South Korea, and closed almost 90 Korean-owned Lotte Mart stores in the mainland.
  • In 2010, China began restricting exports of rare earths elements to Japan— a key ingredient for many electronics industries — following a collision near disputed East China Sea islands.
  • Two years later, mass protests were organised by China over the islands issue, which led to boycotts of Japanese brands.
  • With the Philippines,a dispute over the Scarborough Shoal in the South China Sea in 2012 led to China curbing imports on bananas.
  • In all those relationships, China had particular leverage that it used to inflict immediate economic pain.

India’s leverage:

  • In the India-China economic relationship, where trade is lopsided in China’s favour, both sides have different leversthat they could turn to,
  • India’s biggest lever is its
  • For TikTok, one of the 59 apps banned, India is the biggest overseas market with more than 100 million users.
  • While the parent company ByteDance reported modest earnings of $5.8 million in 2018-19, its first full year in India, a source close to the company told the Chinese finance magazine Caixin that ByteDance “is anticipating a loss of more than $6 billion, most likely more than the combined losses for all the other Chinese companies behind the other 58 apps banned in India.”
  Trade scenario: · India’s trade deficit with China fell to $48.66 billion in 2019-20 on account of the decline in imports from the neighbouring country, according to government data. · Exports to China in the last financial year stood at $16.6 billion, while imports aggregated at $65.26 billion, the data showed. · The trade deficit stood at $53.56 billion in 2018-19 and $63 billion in 2017-18. · The main imports from China include clocks and watches, musical instruments, toys, sports goods, furniture, mattresses, plastics, electrical machinery, electronic equipment, chemicals, iron and steel items, fertilisers, mineral fuel and metals. · India has time and again raised concerns over the widening trade deficit with China. · The government is framing technical regulations and quality norms for several products to reduce dependence on Chinese imports. · It has also imposed anti-dumping duties on several goods, which are being dumped in the domestic market at below the average prices from China with a view to guarding domestic players from cheap imports. As many as 371 products have been identified for technical regulations. · Of these, technical regulations have been formulated for 150 products worth $47 billion of imports.
image 81

Chinas clout:

  • However, options are tilted in China’s favourbecause China is far less dependent on India’s market than India is on Chinese imports.
  • If India does have leverage that could hurt potential revenues of Chinese companies, the problem for New Delhi is China could inflict immediate economic pain should it choose to.
  • Industry representatives have expressed concern over delays in customs clearances. If China curtailed exports to India, consequences would be more serious.

India’s dependency:

  • In 2019-20, India’s imports from China accounted for $65 billion out of two-way trade of $82 billion.
  • India relies on China for crucial importsfor many of its industries, from auto components to active pharmaceutical ingredients (APIs).
  • Between 70% to 90% of APIscome from China.

Way forward:

  • India faces difficult choices and needs to be selective in its measures.
  • It should choose areas where it won’t get hurt more than they China does.
  • TikTok is a good candidate as India is their largest market. Telecom is another as it is a huge market for Huawei.

Whether India’s measures will influence China’s behaviour on the border will ultimately depend on Beijing’s calculus, and whether its perceived gains from the current border stand-offs outweigh the potential costs of losing a key market.

Source:” The Hindu“.

POSSIBLE UPSC CSE MAINS QUESTION:

Evaluate the recent decision of India to ban Chinese apps, considering the trade dependency of India on China. What measures are needed in the long term?